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“Private insurance and public insurance are not separated by a wall; on the contrary, they are in the same boat”

Interview with Alejandro Izuzquiza Ibánez de Aldecoa, Director of Operations at the Insurance Compensation Consortium (ICC)

In recent months, the Insurance Compensation Consortium has faced historic challenges after a series of catastrophic events in Spain. Its Director of Operations, Alejandro Izuzquiza, spoke to us about how these challenges were met, and went over the history and prospects of this historic institution that is a world leader in the insurance industry.

The ICC began as a temporary institution following the Spanish Civil War and became permanently established in 1954. What were its original functions and how have they changed over time?

The Consortium began under another name in 1941 as a temporary instrument to facilitate liquidation of the damages incurred during the Spanish Civil War from 1936 to 1939. It was used to manage serious incidents in the 1940s, such as the fires in the city of Santander and the explosion at the Alcalá de Henares munitions dump (1948).

In its second phase, it became consolidated and permanent under a Law of December 16, 1954, which conferred it coverage of extraordinary and agricultural risks. During this phase, it gradually took on new functions in the fields of credit insurance for exports in the 1960s, combined crop insurance in the 1980s, and it absorbed two autonomous agencies from the Central Spanish Government—the Guarantee Fund of Obligatory Automobile Insurance and the Obligatory Travel Insurance Commission.

The third phase, where it is currently, began with proclamation of its Legal Status in 1991 under which the Consortium (until then legally considered an Autonomous Agency) acquired the configuration of a government institution. This law gave it an organizational and operational flexibility that it lacked and brought it onto the path of collaboration with private insurance. It was thereby ultimately configured as a Public Company in 2004.

How does it complement the insurance industry and what is its role in its stability?

The Consortium is a multi-functional public institution whose mission is not to compete with private insurance, but rather to complement it by taking on functions in fields that private insurance cannot reach normally or at all. I always emphasize —especially when I am talking about outside of Spain— that one of the most important assets of Spain’s insurance system is the Consortium’s presence, which provides private insurance with a public “bonus.” For example, under the Consortium’s coverage, natural disaster and terrorism risks are insured in Spain in a way that is stable, permanent, and affordable for the public. In addition, without the support from the Consortium’s coinsurance and reinsurance, the Spanish system of combined crop insurance would not have been launched, which is another of the important assets of Spanish insurance.

Lastly, the Consortium can participate, with coinsurance and reinsurance, in other coverages for cases in which public interest is present and there are difficulties in the insurance market, as happened following the 9/11 attacks in the field of terrorism insurance in aviation, or with the economic crisis in full swing in 2008, which created underwriting problems in credit and surety risks.

“One of the most important assets of Spain’s insurance system is the Consortium’s presence, which provides private insurance with a public ‘bonus.’”

How does this institution’s existence benefit Spain?

The Consortium provides stability and clarity to the insurance system, thereby allowing private institutions to focus on standard risks. Roles are distributed and specialization is guaranteed. But, additionally, and this is a key point, each part perfectly understands its role. And that understanding has been built over time. The Consortium, which is completely public, participates in the initiatives and institutions comprising private insurance, not with the goal of directing them or taking them over, but rather to support them. Private insurance and public insurance are not separated by a wall; on the contrary, they are in the same boat. We are together in ICEA; in the committees on what has been called the personal damage “scale” and in the traffic injury assistance conventions; on the OFESAUTO steering committee; and other boards, such as for CEPREVEN, Agroseguro, Centro Zaragoza, and TIREA. Your mission cannot be to complement and support if you are far from the groups you must complement.

In my opinion, the Consortium is an institution based on public-private partnership. Over the last few decades, it has gotten closer to private insurance and vice-versa. I believe that now there is good chemistry between each side.

As a unique institution in the world, the Consortium has an excellent reputation outside of Spain’s borders. What is the most interesting aspect of its operation, particularly in Latin America?

I always feel a special type of motivation when I explain the Consortium’s figure, functions, and operating methods outside of Spain and I am proud of the impression it makes. Spain’s insurance system is full of magnificent industry initiatives that make us stand out from other countries in an extraordinarily positive way and shape a common culture and public-private understanding that does not exist in other markets. The Consortium takes interest abroad due to its unique nature, because its functions are quite varied, and because they resolve issues that have clear social significance. In these 65 years of experience, we have adapted to social changes and the industry’s needs. In Latin America, I see special interest, because they look to Spain’s insurance system as an example to follow and the problems we face are very relatable to them.

Is an institution like the Consortium viable in Latin America? How do the region’s large insurance companies manage the lack of an institution of this importance?

The idea is not to export the Consortium to those countries, but rather that they become familiar with us and see what aspects from our system can be easily adapted to their specific needs. Copying is absurd. Reflecting and taking lessons away from others’ success is what makes sense. The essence of the Consortium can be incorporated, with the necessary adjustments, to Latin American insurance: public-private partnership and risk mutualization to make coverage available to everyone. The private market cannot provide a stable, permanent and affordable solution to risks of collective importance, such as disasters, terrorism, climate change and environmental risks. Public action cannot either. We must look for hybrid methods and involve both sides.

You play a fundamental role in assisting natural disaster victims. Could you tell us more about your lines of action after an event of this type?

The Consortium has two lines of action to manage the events resulting from extraordinary risks. The first, which is the most common, can be applied to all extraordinary risks —except for wind storms— and consists of direct management with a paperless procedure. It therefore receives and records electronic notifications of damages sent directly by the insured parties via their insurance companies or intermediaries. Communication is simple— via toll-free calling or the internet. We assign the submitted claims to our insurance appraisers in a way that is rational, ordered, and by zone or even building, using a georeferenced information system. We communicate the damage assessment assignments to them through the online message platform.

We then process the appraised claims at our central offices and in the 17 offices of our 14 regional units. Lastly, we liquidate the resulting compensation —or an advance payment of the compensation for long-term claims— to the insured parties through bank transfers.

For personal damage caused by extraordinary risks, we centrally manage compensation with administrators specialized in these particularly sensitive situations. First, I write an individualized letter to the families, which initiates management of the corresponding file. These are cases we take very special care with.

The second line of action is activated for damages from an atypical cyclonic storm (ACS), in other words, unusual wind with a speed greater than 120 km/h or a tornado. In this case, as opposed to the other extraordinary risks, there is no automatic coverage by the Consortium. It is therefore necessary to first check with AEMET where the wind speed exceeded the state speed threshold or if a tornado occurred. Pursuant to a protocol signed by UNESPA and the Consortium, insurance companies assist the insured parties without waiting for a statement from AEMET. They then subsequently request reimbursement from the ICC for the compensation advanced in the municipalities where ACS winds occurred.

How is the framework of action defined between private insurance and the Consortium?

The various roles that correspond to private insurance and the Consortium are sufficiently defined with legislation on extraordinary risk insurance, the special action protocol in ACS events, which I just mentioned, and a healthy practical understanding between both fields, private and public.

The first defining factor is the list of extraordinary risks assigned to the Consortium as established by law. There are events in which the Consortium takes no action, as in the case of damage caused by snow or hail, and others in which both sides are involved. For intense rain that produces flooding, the Consortium provides compensation for any damages resulting from land flooded by rain or an overflowing river. In contrast, private insurance provides compensation for damage caused by rainwater leaks through windows or rooftop terraces.

The second defining factor is the protocol I referenced above that is used to manage wind damage. This protocol is, in my opinion, an example of collaboration between private and public insurance.

The third factor is the good understanding needed for practical management of compensation. It rests on the close relationship that exists between the Consortium and insurance companies, which has been shaped over the years.

What does the insurance network bring to the fast, efficient management of incidents assigned to the Consortium? In what parts of the process do they collaborate most actively?

The network —which is understood as the whole of insurance companies and intermediaries that assist the insured parties during a claim— provide order and coherence in a context that is distinctly one of unease, impatience, and uncertainty. Where there is a network of insurance professionals familiar with the Consortium, its legal regulations, its procedures and criteria, management of the thousands of claims resulting from a catastrophic event is much easier and faster.

Collaboration is extremely important in order to properly define things using common sense when we are facing a risk assigned to the Consortium and when it is a standard risk that private insurance must handle, as well as in the submission phase for compensation requests or for an active ACS, adapting to the agreed upon protocol.

“Collaboration is extremely important in order to properly define things using common sense when we are facing a risk assigned to the Consortium and when it is a standard risk that private insurance must handle”

As a relatively recent example, there is the cold drop episode that occurred on Spain’s southeastern coast in September 2019 with a record number of victims eligible for compensation. What is it like managing those claims?

That cold drop episode was the flood with the highest number of incidents in the Consortium’s 65-year history. As a whole, it resulted in 69,000 claims, with a cost that will ultimately total around 500 million euros.

The first phase, which consisted in digitally receiving and recording damage notifications through the call center and the internet, also broke another record: on September 20, 2019, 9,910 compensation requests were recorded. Of the 69,000 total notifications, 70% were submitted over the internet and 30% through the toll-free 900 number.

In the second phase, damage assessment, a record number of insurance appraisers were involved: more than 400 in total. Ordered and rational delegation of the appraisal assignment —by areas or housing blocks or vehicle repair shops— required an enormous level of work in georeferencing for each of the compensation requests.

In the third phase —processing the appraised claims and paying the insured parties via bank transfers— every administrator from the Consortium’s 17 regional offices and 2 support teams from the central offices were involved.

It is important to note, in order to provide an idea of the massive number of claims that had to be managed, that the September cold drop episode was followed by another in October in Catalonia and Cantabria. The October episode was then followed by storms Daniel, Elsa, and Fabien in December and the powerful squall known as Gloria in January 2020. In total, the Consortium was face with 90,000 claims.

 What is your opinion of participation from insurance companies in the specific case of the cold drop?

I consider it to be very positive. First, because the insurance companies collaborated by sending the compensation claims on behalf of the insured parties to the Consortium directly or through its distribution networks of insurance brokers and agents. The companies sent 19% of the 69,000 compensation claims directly to the Consortium. The network of insurance brokers and agents, for their part, submitted 44% of the claims. And the insured parties submitted the remaining 37% of the cases.

Second, in order to streamline processing and not bother the insured parties by asking them for supporting documentation or clarifications about the underwriting where there is uncertainty, we requested that each insurance company designate a representative with the Consortium. The reaction was immediate and the representatives have done excellent work.

Do you see a culture of risk in Spain’s business world?

The culture of risk of a network comprising primarily SMEs is not all that different from the one present for the individuals and families that make up Spanish society. And we know that its roots do not run very deep among us. In my opinion, this absence is not only cultural. The financial aspect also has an impact as our businesses do not have extensive resources and have seen many difficulties. Having a risk map, benefiting from a strategy and specialized department, no matter how small, that comprises professionals trained in risk management to apply this strategy, and investing in risk mitigation and prevention require resources.

There is one thing that could be a good explanation. It often happens that, when claims are managed in the Consortium from businesses or industries damaged by flooding or another extraordinary risk, the business owner does not have profit loss coverage. Lack of knowledge? Sometimes. But on many occasions this is a problem of resources: only what’s essential is insured.

What importance does the work of risk management have in corporations?

I see it as a discipline inherent to modern business that has, in a manner of speaking, its own substance separate from other aspects comprising this activity. In short, it’s not that I consider it to be essential; but rather, simply, it is essential.

Earlier I mentioned a culture of risk that can be improved on in small- and medium-sized companies. In large companies, considerable progress has been made. There is a generation of risk managers that are quite well trained and are now established. I can also see, from the Consortium’s vantage point, the rise of a new generation that will be a great continuation to present leaders. The growing importance of risk management and the equally growing technical and professional capacity of the people who execute it has improved the position of risk managers and their teams in business’ organizational structure; they have risen in status and become more independent.

What would you highlight from your experience at the head of the Consortium?

In my more than 20 years of experience at the Consortium, I believe I have been able to build a very complete idea of professional risk management in Spain, which covers several aspects.

First, during a claim, I have had very good risk managers as representatives of the Consortium and our appraisers. We have clearly identified discrepancies and have aligned our positions in an atmosphere of mutual understanding.

Second, I can guarantee that, if representation on an individual level has been outstanding, institutional representation with the two associations —Agers and Igrea, which I refer to alphabetically— has gotten and continues to get top honors.

Third, I am struck by the extremely valuable female presence both in established risk management and in new assets, and by the promising young people in this discipline. This sector has spectacular professionals who bring terrific drive and an enthusiastic and contagious faith in risk management.

Finally, I believe we have a crucial mission of serving as a guide for smaller companies to help them to take the first steps, in some cases, or, in others, to go in the correct and professional direction in the discipline of risk management.

lejandro Izuzquiza Ibáñez de Aldecoa (Madrid, 1954), has a degree in Economic Science from the Universidad Complutense and is a member of the Higher Government Insurance Inspection Corps. The start of his professional career was focused on the General Directorate for Insurance and Pension Funds, with three distinct fundamental stages to his career at this institution. The first, as director of the reorganization of the insurance industryA, which took place after 1984, when the Insurance Company Liquidation Commission (CLEA) was created.

The second, when he was appointed as Assistant General Manager of Insurance Market Organization. “During that period I had, essentially, very direct involvement in the creation of the personal damage scale for automobile third party liability insurance and on the government bill on Private Insurance Mediation of 1992,” he remembered. In addition, he played a very active role in the sector’s restructuring.

In 1997, he joined the Insurance Compensation Consortium with an objective: to make practical use of the theoretical and legislative background that had carried him through his previous stage. “My objective was, basically, to provide intuitive operational guidance on compensation management, make the Consortium more available to the insured, and shorten the compensation payment periods,” he explained. Always working in the public sector, “in defense of public interests,” as he normally says, he asserted that one of the things he values most is to be in close contact with private sector professionals. “I believe that it is difficult to fulfill the role corresponding to public insurance without connecting and working with private insurance,” he concluded.

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